TEMECULA: District secures private loan to cover temporary budget gap

Administrators say there now will be enough money to meet payroll expenses

The Temecula school district recently secured a $17.4 million
private loan, which means the school district will have enough
money to pay employees through the end of the school year.

School districts often move money back and forth from one
account to another to cover expenses as the district awaits state
payouts. But because the state isn't releasing all of the money the
district is due, administrators were forced to go looking for extra
cash to help them afford payroll expenses for the rest of the
year.

Taxpayer-funded entities such as school districts and cities
often cover cash shortages by taking out short-term loans called
Tax Revenue Anticipation Notes.

The loans, known as TRANs, are essentially advances on revenue
the districts expect to receive from the state and county and are
paid back when the agency actually receives that money.

The Temecula Valley Unified School District traditionally gets
such a loan each July to cover summer payroll and operating
expenses. Debts are paid back in December and May with property tax
revenue that flows in to the district, Assistant Superintendent
Jeff Okun said.

This year, because the state is deferring some payments the
school district was expecting, the district will receive a second
TRAN to cover payroll for May and June.

Originally, lenders expressed concern that the second loan would
be used to pay off the first ---- sort of like making a MasterCard
payment with a Visa ---- and those efforts were rebuffed.

But, thanks to a better-than-expected credit rating, the
district was able to secure the private loan last week, trustees
were told Tuesday.

When the TRANs loan looked to be in doubt, the district was
considering asking the Riverside County Office of Education for a
$12 million loan to make sure it had enough cash on hand to pay
salaries in May and June.

The district spends about $15 million on payroll per month, Okun
said.

"We'll have no payroll problems the rest of the fiscal year,"
Okun said Tuesday.

The uncertainty surrounding cash flow forced the school board
last month to send its second interim budget report to the county
Office of Education with a "qualified" rating, acknowledging it may
not be able to meet its financial obligations for the rest of the
school year.

It's the first time in district history the board has given a
grading other than "positive" to a financial report, officials
said.

As California's budget has shrunk, the state has been
withholding money that is due to entities such as school districts
and municipalities.

Okun said the school district expected to receive more than $9
million from the state in February, but got $158,000.

He expects only $6 million of the $9 million earmarked in April
and $5 million of the $9.8 million expected in May.

Not getting that money hampers cash flow through the summer,
Okun said.

While the majority of school districts pay their employees with
11 monthly checks, Temecula pays workers every month, even though
most don't work in July.

Trustees asked if switching to an 11-month pay schedule would
eliminate the need for midyear borrowing. Okun said it would, but
added that employees, who are used to 12 checks, would need about
one year's notice so they could budget for one less paycheck.

The district's cash flow problems come on top of a budget
shortfall that once reached $24 million for the 2010-11 school
year, primarily because of lower-than-expected revenue from the
state.

District administrators are attempting to balance the budget
through unpaid days for workers and teacher layoffs. Closing an
elementary school, discontinuing home-to-school busing and cutting
money given to high school athletics also are options being
considered, along with laying off support workers.

This year's district budget projects $198 million in revenue and
$222 million in expenses. With budget cuts that already have been
made for next year ---- including 150 teacher layoffs ---- the
district is forecasting $197 million in revenue and $201 million in
expenses.

While the TRANs loan doesn't give the district more money to
work with, it does help cover the immediate cash shortfall.

In March, the neighboring Murrieta Valley Unified School
District board authorized seeking a loan to stabilize cash flow for
the current school year. Loans also were taken out in 2008 and
2009, according to a district official.

Lake Elsinore Unified School District trustees approved taking a
loan of up to $30 million earlier this month.

Neither the Menifee Union nor Perris Union High School district
are seeking a loan, officials said.

While the loans are popular with municipalities and school
districts, they come with a cost.

Agencies must pay interest and fees on the loans, although costs
are somewhat offset by the interest they receive while the money is
in the bank.